Vladimir Putin hopes further aggression to ease sanctions

Sergei Guriev, a professor of economics at the Paris Institute of Political Studies believes that Russian President Vladimir Putin does not intend to stop his aggressive actions in the Donbas he hopes that further escalation will make the West adopt the "policy of appeasement".

President Putin is not going to change his policy towards Ukraine, even after the Russian economy was downgraded by international rating agency. Sergei Guriev, a former rector of the New Economic School, and now a professor of economics at the Paris Institute of Political Studies wrote for The Financial Times about the consequences of the credit rating downgrade of the Russian economy, Joinfo.ua reports.

As it is known, on Monday, Standard & Poor's, one of the three major rating agencies, has downgraded Russia's rating to BB +, which is one notch below the investment grade. The other two agencies Moody's and Fitch also negatively evaluate the future of the Russian economy.

Guriev says that "some companies — including Rosneft — say ratings do not matter as sanctions rule out new borrowing anyway." "It is true that the Russian government and companies are indeed cut off from the financial markets, but losing the investment grade increases the cost of servicing existing debt as well," Guriev writes.

Therefore, it is possible that a part of Russia's foreign debt, estimated at $ 600 billion dollars, will be paid ahead of time or with increased interest. It should be noted, that given the depreciation of the ruble this debt now stands at 50% of GDP against 35% just a year ago.

"Russia has in effect moved back 10 years. It was in 2005 that the country received investment grades from all the three rating agencies. Russia preserved those grades even in 2008 when the oil price fell threefold to below $40 a barrel — and in 2009, when Russian GDP collapsed by 8 per cent. By rating Russian debt junk, S&P is sending a clear signal that the country is now facing a much more dangerous crisis than that of 2008-09," the newspaper writes.

In his opinion, "there are many reasons to agree with the pessimism of the rating agencies." Among them there are more than two-fold oil prices drop, sanctions, and reduction of financial reserves. The expert suggests that it is very likely that "Russia will run out of cash by the end of 2016 if oil prices do not rise and sanctions are not lifted."

Besides, there is another factor that causes pessimism about the Russian economy. "The Russian state has become even more pervasive and if anything even more corrupt, reducing the efficiency and the agility of the economy. When these factors are added together, even the current consensus forecast of a 5 per cent GDP fall in 2015 looks too optimistic. More important, the recession is likely to continue in 2016 and 2017 — unlike in 2009 when growth resumed quickly."

"President Vladimir Putin has always liked to contrast the "stability" of the 2000s with the "chaos" of the 1990s," Guriev continues. "Now, this cornerstone of his domestic legitimacy has gone. Will this immediately change Russia's foreign policy calculus? Not necessarily."

Also, according to the analyst, there is also an ideological point in Russia's economic policy. "The other key element of Russian official propaganda is that the country has to stand up for its values whatever the economic cost. Mr. Putin cannot tell the Russian public that he was forced to retreat from eastern Ukraine by economic sanctions. That would not only be extremely humiliating, he would also look incompetent, having started a war that he so obviously could not have won. This is why the Russian government prefers to raise the stakes — in effect using Ukrainian civilians as hostages, a strategy aimed at convincing Europe that the Russian regime has nothing to lose," Guriev says.

"Further sanctions will result in further escalation and bloodshed by Russian-backed rebels, like Saturday's rocket attack on Mariupol. Moscow hopes that Europe will eventually have to agree to appeasement and remove the sanctions. Then Russian economic hardship will ease and Mr Putin will emerge as a victor, at least on Russian television screens. Whether this will save more lives is not clear — and the 20th century's history of appeasement may suggest otherwise," the economist concludes.

Previously, it was reported that Kathleen McFarland, the Fox News National Security Analyst believes that Russian President Vladimir Putin is still dangerous for the West, but the collapse of the Russian economy will kill the "wounded Russian bear."